Resources for smaller franchisees

Some of the larger multiunit franchisees showing renewed interest in Krispy Kreme might have an easier time securing growth capital, while smaller regional operators might struggle more for financing, Morgan said. But the company would explore ways it could deploy some of its more than $60 million in cash on hand to enable franchise growth, including an equipment financing package for franchisees.

“The state of financing for franchisee development kind of depends on who you are in the franchise world,” chief financial officer Doug Muir said. “But my sense is that the money is out there, and particularly when I think we’re at the point now, we can generate what appear to be some pretty strong economic returns on the investments.”

Krispy Kreme would also prepare to increase company-owned unit growth as well in the near term, Morgan added, though securing real estate is a major challenge that the company first had to address through its staffing. Two new executives have joined the company in the past three months to help with real estate site selection, he said.

Opening more corporate locations, very likely in new markets, would be a prudent use of Krispy Kreme’s free cash flow, Muir said. “Our first choice, given the ROIs we think we can get, would be to pick up the pace of company-store investment,” he said, “and that could mean, and probably does mean, more geography than we have discussed in detail so far.”

The company also expects all of the nearly 100 domestic company-owned units to have new point-of-sale hardware and software installed by the end of the year. Franchisees controlling about 60 of the 150 domestic franchised units indicated to Krispy Kreme that they want to begin implementing the new system as soon as possible, Muir said.

“It was well-tested on the front end and so far has been remarkably glitch-free,” he said. “Part of the software that could be business-changing — for example, pay-by-phone or loyalty programs — are only now being white-boarded and wouldn’t be implemented into the software until 2014 at the earliest. … But I can tell you, the marketing people are really excited about the potential of that.”

Krispy Kreme operates 93 company-owned units and franchises another 150 locations in the United States, and it franchises another 546 restaurants in 21 international markets.